Revenue from Contracts with Customers

3 Months Ended

Jun. 30, 2018

Revenue From Contracts With Customers

Revenue from Contracts with Customers

3. Revenue from Contracts with Customers

Adoption Method and Impact

The Company adopted ASC 606 using the modified retrospective method and applied the related provisions to all open contracts. The Company recognized the cumulative effect of initially applying the new revenue standard as an adjustment to the opening balance of retained earnings. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. As a result of adoption, the Company recognized a $0.3 million decrease to retained earnings at the beginning of the 2019 fiscal year for the cumulative effect of adoption of this standard, representing the impact to prior results had the over-time revenue recognition model been applied to service contracts. Contract assets of $1.3 million and contract liabilities of $0.8 million were recorded, along with a $0.8 million reduction to work-in-process inventory as a result of the ASC 606 adoption using the modified retrospective method.

In addition, as a result of the accounting changes resulting from this new accounting standard, first quarter fiscal 2019 sales, operating income and net income increased by $1.1 million, $0.6 million and $0.5 million, respectively. Basic and diluted net income per common share each increased by $0.02. These changes are attributable to revenue from service contracts being accelerated into the first quarter of fiscal 2019 as a result of the change to an over-time revenue recognition model. On the consolidated balance sheet, work-in-process inventory was $1.4 million lower at June 30, 2018 compared to what it would have been under the previous accounting guidance. In addition, prepaids and other current assets, accrued expenses and other current liabilities and retained earnings increased by $2.3 million, $0.6 million and $0.2 million, respectively. The changes in other current assets and accrued expenses were directly related to the activity within the customer contract assets and liabilities.

Disaggregation of Revenue

The Company operates in four business segments with similar economic characteristics, including nature of the products and production processes, distribution patterns and classes of customers. Revenue is disaggregated within these business segments by our two principal end markets: aerospace and industrial. Comparative information of the Company’s overall revenues for the three months ended June 30, 2018 and July 1, 2017 are as follows:

Principal End Markets:

	Three Months Ended
	June 30, 2018						July 1, 2017
	Aerospace		Industrial		Total		Aerospace		Industrial		Total
Plain	$	56,384	$	22,141	$	78,525	$	54,471	$	18,182	$	72,653
Roller		16,887		18,983		35,870		15,939		15,474		31,413
Ball		4,004		14,070		18,074		3,645		12,135		15,780
Engineered Products		27,216		16,300		43,516		29,407		14,644		44,051
	$	104,491	$	71,494	$	175,985	$	103,462	$	60,435	$	163,897

In addition to disaggregating revenue by segment and principal end markets, the Company believes information about the timing of transfer of goods or services, type of customer and distinguishing service revenue from product sales is also relevant. Refer to Note 2 – “Significant Accounting Policies” for further details.

Remaining Performance Obligations

Remaining performance obligations represent the transaction price of orders meeting the definition of a contract in the new revenue standard for which work has not been performed or has been partially performed and excludes unexercised contract options. The duration of the majority of our contracts, as defined by ASC 606, is less than one year. The Company has elected to apply the practical expedient which allows companies to exclude remaining performance obligations with an original expected duration of one year or less. Performance obligations having a duration of more than one year are concentrated in contracts for certain products and services provided to the U.S. government or its contractors. The aggregate amount of the transaction price allocated to remaining performance obligations for such contracts with a duration of more than one year was approximately $195,384 at June 30, 2018. The Company expects to recognize revenue on approximately 74% and 96% of the remaining performance obligations over the next 12 and 24 months, respectively, with the remainder recognized thereafter.

Contract Balances

The timing of revenue recognition, invoicing and cash collections affect accounts receivable, unbilled receivables (contract assets) and customer advances and deposits (contract liabilities) on the Consolidated Balance Sheets.

Contract Assets (Unbilled Receivables) - Pursuant to the over-time revenue recognition model, revenue may be recognized prior to the customer being invoiced. An unbilled receivable is recorded to reflect revenue that is recognized when 1) the cost-to-cost method is applied and 2) such revenue exceeds the amount invoiced to the customer.

Contract Liabilities (Deferred Revenue) - The Company may receive a customer advance or deposit, or have an unconditional right to receive a customer advance, prior to revenue being recognized. Since the performance obligations related to such advances may not have been satisfied, a contract liability is established. Contract liabilities are included within accrued expenses and other current liabilities or other non-current liabilities on the consolidated balance sheets until the respective revenue is recognized. Advance payments are not considered a significant financing component as the timing of the transfer of the related goods or services is at the discretion of the customer.

These assets and liabilities are reported on the consolidated balance sheet on an individual contract basis at the end of each reporting period. As of June 30, 2018 and March 31, 2018, accounts receivable with customers, net, were $116,211 and $116,890, respectively. The tables below represent a rollforward of contract assets and contract liabilities for the first quarter ended June 30, 2018:

Contract Assets - Current (1)
Balance at April 1, 2018	$	1,323
Additional revenue recognized in excess of billings		1,361
Less: amounts billed to customers		(333	)
Balance at June 30, 2018	$	2,351
(1) Included within “Prepaid expenses and other current assets” on the consolidated balance sheet.

Contract Liabilities – Current (2)
Balance at April 1, 2018	$	14,450
Payments received prior to revenue being recognized		3,211
Revenue recognized on beginning balance		(5,034	)
Reclassification to/from noncurrent		(914	)
Balance at June 30, 2018	$	11,713
(2) Included within “Accrued expenses and other current liabilities” on the consolidated balance sheet.

Contract Liabilities – Noncurrent (3)
Balance at April 1, 2018	$	1,254
Reclassification to/from current		914
Balance at June 30, 2018	$	2,168
(3) Included within “Other non-current liabilities” on the consolidated balance sheet.

As of June 30, 2018, the Company does not have any contract assets classified as noncurrent on the consolidated balance sheet.